Trade Journals Properly Sourced as Sales of Tangible Personal Property for SBT Apportionment
The Michigan Court of Appeals has issued several decisions on the single business tax sourcing rules for apportionment. The determination as to whether the taxpayer is in the business of selling tangible personal property or services is critical as different sourcing rules apply. In BNP Media II, LLC v. Department of Treasury, Michigan Court of Appeals, No. 314458, May 20, 2014 sales of trade journals containing advertising were properly sourced as sales of tangible personal property under the single business tax (SBT) for sales factor apportionment purposes. Under the SBT law, sales of tangible personal property were in Michigan if the property was shipped to a purchaser in Michigan. Sales, other than sales of tangible personal property, were in Michigan if the business activities were performed in Michigan.
The court looked at Catalina Marketing Sales Corp. v. Department of Treasury, 470 Mich. 13; 678 N.W.2d 619 (2004), to determine how to source sales that consisted of both tangible personal property and services. The taxpayer published and circulated business-to-business trade journals. Most of the taxpayer’s revenue came from advertising, and a small amount of revenue was earned through subscriptions.
The appellate court agreed with the Court of Claims that the taxpayer’s advertising sales were "inextricably linked" to the circulation of printed journals. However, the taxpayer did not provide advertising or marketing services, but rather created a product, and did not match advertisers to customers. Thus, viewing the totality of the circumstances, the court held that the taxpayer’s services were incidental and that the production and distribution of trade journals was the taxpayer’s business activity. Accordingly, the sales were properly sourced as sales of tangible personal property.